A couple of decades ago, the precursor of the JSE's health-care sector had a very different appearance. It was dominated by pharmaceutical companies, such as SA Druggists, Propan, Adcock Ingram and Alex Lipworth. The last recognisable survivor is Adcock Ingram, a unit of Tiger Brands.
Today, only generic drug manufacturer Aspen and the tiny Forim appear on a list dominated by national chains of private hospitals.
They have done well for investors, with consistent and healthy growth rates. The biggest by market cap, Netcare, was listed in 1996, after a private placing of shares at 100c. It now controls 7 200 beds in 44 hospitals and has diversified into other medical activities. At home, it has gone into partnership with the recently formed Eclipse Medical Aid Scheme and plans to seek an AltX listing. Abroad, it has gone into public-private partnerships in the UK and Portugal.
Medi-Clinic, which is 86% owned by Remgro, was listed 10 years earlier, also after issuing shares at 100c, and now operates 6 200 beds in 220 hospitals.
Afrox Healthcare, listed in 1999 through a reverse takeover of PresMed, operates 7 500 beds in 63 hospitals. It also manages 8 700 long-stay chronic-care beds in 22 facilities in Lifecare Special Health Services, and is negotiating for public-private partnerships in the UK.
Given the basic social nature of its services, it's not surprising that black economic empowerment is a key issue for the industry. Netcare claims an empowerment component of 32% of its shareholders and 17,5% of its issued equity.
Medi-Clinic has adopted a different approach. After an earlier, small deal with empowerment group Curamed, it is taking advantage of Afrox's desire to get out of the hospital business - SA is the only country in which Afrox's parent, the BOC group, has hospital interests - to "facilitate" (corporate speak for "putting up the money") the acquisition of Afrox Healthcare by a BEE consortium led by Brimstone and Mvelaphanda.
This deal, announced last November, is taking longer to consummate than expected. The competition tribunal is due to hold a hearing in July. But if all goes well, Afrox Healthcare is likely to be delisted by year-end.
The private hospital groups also seem to have protected themselves in the current crisis over government's attempts to curb what is widely seen as the excessive cost of prescription medicines. This is turning out to be a classic case of the law of unintended consequences.
Hospital groups have adjusted their tariff policies and come to arrangements with medical aid providers that will minimise the impact on their margins. Drug prices make up about 15% of their revenues. And it seems that, at least in the short term, the main victims will be local pharmacies.
The laudable objective is to cut drug prices by 15%-30%, by requiring manufacturers to stop offering discounts and set single exit prices, and impose standard dispensing fees on pharmacies, which may no longer offer discounts.
Pharmacies claim this will drive many of them to the wall, and health minister Manto Tshabalala-Msimang has said she faces so many legal challenges to the new system that she has lost count of them. Netcare CEO Jackie Shevel has said the new regulations "make no commercial sense". In the short term, they have even had the effect of increasing some retail drug prices.